Is 'on-demand' insurance right for you?

The on-demand economy has certainly grown over the last decade. We now watch movies and TV on-demand using services like Netflix and Amazon Prime, and we obtain transportation on demand through companies like Uber and Lyft.

With new technology, some insurers allow coverage to be “on-demand,” that is, it can be turned on and off at any time. But can consumers benefit from on-demand insurance in the same ways that they have benefited from innovations in these other industries/? Who will benefit the most from these new on-demand insurance offerings? That depends on what you do, and how often you do it.

A strict definition of on-demand insurance is coverage you can turn on and off with the click of a button. A broader definition also includes coverage for the on-demand economy (for example, insurance for Uber drivers). Today, insurance companies handle both of these cases. For example, Trōv provides property coverage for portable electronic devices (smartphones, cameras or laptops), and you can use your smartphone to click coverage on and off at any moment.

Farmers Insurance provides an option to extend your regular auto insurance to provide coverage for ridesharing (that is, while you’re driving for a company like Uber or Lyft). In either case, we can identify one characteristic that seems to be common to all on-demand insurance to date: On-demand insurance provides coverage in areas not historically covered by traditional insurance policies.

Let’s be clear: An institution like a bank isn’t going to be comfortable turning your homeowners coverage on and off at a whim due to the bank’s financial stake in the home. Similarly, regulators won’t let customers turn auto liability coverage on or off while they’re driving (even if it’s a Tesla in autopilot mode); they also won’t let businesses turn workers’ compensation coverage on and off, because employees may be susceptible to injury around the clock.

So, on-demand insurance isn’t replacing traditional insurance coverage, but it is finding opportunities to cover the new and changing risks brought about by technological innovations. That means on-demand insurance is usually most relevant to customers who use modern technology, whether it’s for play, such as with drones, for travel when taking a laptop on vacation, or for a new source of income such as driving for Uber or hosting using Airbnb.

Related: 10 ways driving analytics are affecting insurance

Ridesharing drivers

For drivers for a ridesharing service, traditional auto insurance policy doesn’t cover the times when they’re using the ridesharing app. The insurance policy of the ridesharing company does provide them with some coverage during this time; however, in most states they’re still left with a gap in coverage. The top bar in the following graphic from Farmers Insurance illustrates this nicely.

Driving is broken up into different periods:

• Period 0 is when you’re not using the ridesharing app and are driving for your own personal use. Your regular auto insurance policy provides you with coverage during this period.
• Period 1 is when you’ve logged on to the ridesharing app and are waiting for a new hired ride. This is when you have the potential gap in coverage.
• Period 2 is when you’ve accepted a ride and are en route to pick up your passenger(s). Period 3 is when your passengers are in your vehicle and are being transported.

During Period 2 and Period 3, you have coverage provided by the ridesharing company’s insurance, though the coverage may not be the same as that provided by your traditional auto policy (different limits or deductibles, for instances).

How can you address this potential gap in coverage? In the market today, you have two options:

• Traditional endorsement coverage for ridesharing from your regular auto insurer, for example, the Farmers Rideshare coverage shown above. This coverage will always be “on” just like a traditional auto policy.
• On-demand coverage only for the times that you’re driving while using the ridesharing app. Newer companies like Slice provide this type of on-demand insurance, and Slice’s premium is determined by the time the ridesharing app is on and miles driven during this time.

As a ridesharing driver, which is best for you? One consideration is the amount of coverage provided because different insurers offer various policy benefits (for example, Slice offers coverage for all ridesharing periods, so drivers don’t need the ridesharing company’s insurance at all).

Beyond coverage differences, the decision to purchase the “always on” coverage versus the on-demand coverage is similar to the decision on whether to buy the annual pass or the one-time pass at a theme park like Disneyland. With lots of usage, the annual pass (with a fixed cost per year) is the better deal; with little usage, buying multiple one-time passes as needed makes more sense.

Matteo Carbone, founder and director of the IoT Insurance Observatory says that “On-demand insurance is attractive to people penalized by traditional insurance products, that is, consumers with low usage that would otherwise have to pay for more coverage than they need.” If you’re a ridesharing driver who doesn’t drive with a ridesharing app on a regular basis, then on-demand coverage may be the best deal for you.

Related: Iowa poised to debut first-ever mobile drivers’ licenses

Consumer education

On-demand insurance works best for customers who are exposed to risks not covered by traditional insurance, who aren’t exposed to these risks often, or both. On-demand insurance can save these individuals money compared to purchasing traditional fixed-term insurance policies.

Despite the potential benefits, many consumers are largely unfamiliar with this new way of purchasing insurance. Michael Fitzgibbon, chief underwriting officer for Slice, notes that “Consumers are calling us to ask how they can buy the annual version of our coverage.” Scott Walchek, CEO of Trōv, adds that: “Consumers are leaving coverage on for much longer than expected, even months at a time.”

More consumer education is needed regarding the merits and limitations of on-demand insurance. As a ridesharing driver, camera aficionado or other on-demand customer or provider, the best ways to get started are to consider whether you:

• May have insurance coverage gaps, or would like to cover infrequently used items, and
• Tend to need that coverage more or less than the “typical” buyer.

Depending on the answer, better — and cheaper — insurance coverage options may be available to you.

Related: An evolving auto industry requires new coverage options

Josh Taub, FCAS, is the vice president of Product & Pricing at Insurtech Swyfft and a member of the Casualty Actuarial Society’s Insurance on Demand Working Party. He can be reached at josh@swyfft.com.